EX-99.2

EX-99.2 3 d175367dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

Interim Condensed Consolidated Financial Statements of

CGI INC.

For the three and six months ended March 31, 2021 and 2020

(unaudited)

Interim Consolidated Statements of Earnings

For the three and six months ended March 31

(in thousands of Canadian dollars, except per share data) (unaudited)


			Three months ended March 31					Six months ended March 31
	Notes		2021			2020		2021			2020
			$			$		$			$
Revenue		8		3,078,540			3,131,141		6,097,981			6,185,888

Operating expenses

Costs of services, selling and administrative				2,593,743			2,645,600		5,120,217			5,225,374

Acquisition-related and integration costs		6c		848			31,097		5,587			51,331

Restructuring costs				—			443		—			31,621

Net finance costs				26,231			26,628		53,409			53,350

Foreign exchange (gain) loss				(1,529	)		2,295		(4,288	)		3,162
				2,619,293			2,706,063		5,174,925			5,364,838
Earnings before income taxes				459,247			425,078		923,056			821,050

Income tax expense				118,034			110,230		238,392			216,009
Net earnings				341,213			314,848		684,664			605,041
Earnings per share

Basic earnings per share		5c		1.36			1.19		2.70			2.28

Diluted earnings per share		5c		1.34			1.18		2.66			2.24

See Notes to the Interim Condensed Consolidated Financial Statements.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		1

Interim Consolidated Statements of Comprehensive Income

For the three and six months ended March 31

(in thousands of Canadian dollars) (unaudited)


	Three months ended March 31						Six months ended March 31
	2021			2020			2021			2020
	$			$			$			$
Net earnings		341,213			314,848			684,664			605,041
Items that will be reclassified subsequently to net earnings (net of income taxes):

Net unrealized (losses) gains on translating financial statements of foreign operations		(308,493	)		470,348			(386,807	)		506,138

Net gains (losses) on cross-currency swaps and on translating long-term debt designated as hedges of net investments in foreign operations		82,805			(96,867	)		160,618			(102,929	)

Deferred (costs) gains of hedging on cross-currency swaps		(1,435	)		16,069			(4,979	)		16,432

Net unrealized gains (losses) on cash flow hedges		8,138			(24,722	)		(1,693	)		(27,403	)

Net unrealized losses on financial assets at fair value through other comprehensive income		(830	)		(39	)		(1,022	)		(189	)

Items that will not be reclassified subsequently to net earnings (net of income taxes):

Net remeasurement (losses) gains on defined benefit plans		(7,631	)		46,833			7,127			26,822
Other comprehensive (loss) income		(227,446	)		411,622			(226,756	)		418,871
Comprehensive income		113,767			726,470			457,908			1,023,912

See Notes to the Interim Condensed Consolidated Financial Statements.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		2

Interim Consolidated Balance Sheets

(in thousands of Canadian dollars) (unaudited)

As at

As at

Notes

March 31, 2021

September 30, 2020

Assets

Current assets

Cash and cash equivalents

7c and 9

1,339,794

1,707,985

Accounts receivable

1,119,371

1,219,302

Work in progress

1,037,434

1,075,252

Current financial assets

24,428

18,500

Prepaid expenses and other current assets

165,577

160,406

Income taxes

451

29,363

Total current assets before funds held for clients

3,687,055

4,210,808

Funds held for clients

784,022

725,178

Total current assets

4,471,077

4,935,986

Property, plant and equipment

346,710

372,946

Right-of-use assets

616,489

666,865

Contract costs

234,732

239,376

Intangible assets

500,265

521,462

Other long-term assets

182,051

163,739

Long-term financial assets

150,320

156,569

Deferred tax assets

113,562

113,484

Goodwill

8,104,724

8,379,931

14,719,930

15,550,358

Liabilities

Current liabilities

Accounts payable and accrued liabilities

957,916

1,025,963

Accrued compensation

762,276

672,775

Current portion of long-term debt

583,267

310,764

Deferred revenue

561,985

426,393

Income taxes

173,278

136,928

Current portion of lease liabilities

168,448

178,720

Provisions

112,589

175,632

Current derivative financial instruments

16,130

8,328

Total current liabilities before clients’ funds obligations

3,335,889

2,935,503

Clients’ funds obligations

780,448

720,322

Total current liabilities

4,116,337

3,655,825

Long-term debt

2,789,237

3,276,331

Long-term income taxes

5,673

6,720

Long-term lease liabilities

649,300

697,650

Long-term provisions

25,683

23,888

Other long-term liabilities

179,128

185,374

Long-term derivative financial instruments

69,537

56,622

Deferred tax liabilities

108,602

158,341

Retirement benefits obligations

207,484

225,447

8,150,981

8,286,198

Equity

Retained earnings

4,359,822

4,703,642

Accumulated other comprehensive income

318,954

545,710

Capital stock

1,617,715

1,761,873

Contributed surplus

272,458

252,935

6,568,949

7,264,160

14,719,930

15,550,358

See Notes to the Interim Condensed Consolidated Financial Statements.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		3

Interim Consolidated Statements of Changes in Equity

For the six months ended March 31

(in thousands of Canadian dollars) (unaudited)


						Accumulated
						other
			Retained			comprehensive			Capital			Contributed			Total
	Notes		earnings			income			stock			surplus			equity
			$			$			$			$			$

Balance as at September 30, 2020				4,703,642			545,710			1,761,873			252,935			7,264,160

Net earnings				684,664			—			—			—			684,664

Other comprehensive loss				—			(226,756	)		—			—			(226,756	)
Comprehensive income				684,664			(226,756	)		—			—			457,908

Share-based payment costs				—			—			—			23,567			23,567

Income tax impact associated with stock options				—			—			—			8,784			8,784

Exercise of stock options		5a		—			—			35,140			(6,083	)		29,057

Exercise of performance share units		5a		—			—			6,745			(6,745	)		—

Purchase for cancellation of Class A subordinate voting shares		5a		(1,028,484	)		—			(154,639	)		—			(1,183,123	)

Purchase of Class A subordinate voting shares held in trusts		5a		—			—			(31,404	)		—			(31,404	)
Balance as at March 31, 2021				4,359,822			318,954			1,617,715			272,458			6,568,949

						Accumulated
						other
			Retained			comprehensive			Capital			Contributed			Total
	Notes		earnings			income			stock			surplus			equity
			$			$			$			$			$

Balance as at September 30, 2019				4,557,855			176,694			1,903,977			245,577			6,884,103

Adoption of IFRS 16				(93,873	)		—			—			—			(93,873	)
Balance as at October 1, 2019				4,463,982			176,694			1,903,977			245,577			6,790,230

Net earnings				605,041			—			—			—			605,041

Other comprehensive income				—			418,871			—			—			418,871
Comprehensive income				605,041			418,871			—			—			1,023,912

Share-based payment costs				—			—			—			19,885			19,885

Income tax impact associated with stock options				—			—			—			(15,630	)		(15,630	)

Exercise of stock options		5a		—			—			48,427			(8,459	)		39,968

Exercise of performance share units		5a		—			—			8,856			(8,856	)		—

Purchase for cancellation of Class A subordinate voting shares		5a		(878,202	)		—			(165,315	)		—			(1,043,517	)

Purchase of Class A subordinate voting shares held in trusts		5a		—			—			(55,287	)		—			(55,287	)
Balance as at March 31, 2020				4,190,821			595,565			1,740,658			232,517			6,759,561

See Notes to the Interim Condensed Consolidated Financial Statements.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		4

Interim Consolidated Statements of Cash Flows

For the three and six months ended March 31

(in thousands of Canadian dollars) (unaudited)


		Three months ended March 31						Six months ended March 31
	Notes	2021			2020			2021			2020
		$			$			$			$

Operating activities

Net earnings			341,213			314,848			684,664			605,041

Adjustments for:

Amortization, depreciation and impairment			124,747			130,694			257,164			263,075

Deferred income taxes recovery			(38,102	)		(13,763	)		(41,650	)		(10,273	)

Foreign exchange loss (gain)			5,110			3,155			(4,143	)		649

Share-based payment costs			11,863			6,683			23,567			19,885

Net change in non-cash working capital items	7a		127,786			(45,125	)		250,488			(16,619	)
Cash provided by operating activities			572,617			396,492			1,170,090			861,758

Investing activities

Net change in short-term investments			—			(1,406	)		1,473			(1,591	)

Business acquisitions (considering the bank overdraft assumed and cash acquired)			(1,332	)		(139,451	)		(28,600	)		(272,586	)

Purchase of property, plant and equipment			(33,471	)		(40,037	)		(50,280	)		(69,543	)

Additions to contract costs			(20,544	)		(22,166	)		(34,851	)		(35,728	)

Additions to intangible assets			(30,293	)		(26,951	)		(55,197	)		(50,830	)

Purchase of long-term investments			(551	)		(900	)		(2,466	)		(4,859	)

Proceeds from sale of long-term investments			577			1,236			3,186			5,380
Cash used in investing activities			(85,614	)		(229,675	)		(166,735	)		(429,757	)

Financing activities

Net change in unsecured committed revolving credit facility			—			(74,738	)		—			(234,623	)

Increase of long-term debt			23,439			1,076,131			29,864			1,088,869

Repayment of long-term debt			(2,479	)		(6,303	)		(42,362	)		(27,637	)

Payment of lease liabilities			(50,757	)		(47,723	)		(91,776	)		(89,407	)

Repayment of debt assumed in business acquisitions			—			(10,169	)		—			(23,232	)

Payment for remaining shares of Acando¹			—			—			—			(23,123	)

Purchase of Class A subordinate voting shares held in trusts	5a		—			(30,372	)		(31,404	)		(55,287	)

Purchase and cancellation of Class A subordinate voting shares	5a		(747,068	)		(1,026,337	)		(1,183,123	)		(1,043,517	)

Issuance of Class A subordinate voting shares			14,329			17,305			28,840			40,076
Cash used in financing activities			(762,536	)		(102,206	)		(1,289,961	)		(367,881	)
Effect of foreign exchange rate changes on cash and cash equivalents			(59,772	)		24,798			(81,585	)		24,536
Net (decrease) increase in cash and cash equivalents			(335,305	)		89,409			(368,191	)		88,656

Cash and cash equivalents, beginning of period			1,675,099			213,078			1,707,985			213,831
Cash and cash equivalents, end of period			1,339,794			302,487			1,339,794			302,487

¹ Related to a business acquisition made during the year ended September 30, 2019.

Supplementary cash flow information (Note 7).

See Notes to the Interim Condensed Consolidated Financial Statements.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		5

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

1.	Description of business

CGI Inc. (the Company), directly or through its subsidiaries, provides managed information technology (IT) and business process services (BPS), systems integration and consulting, as well as the sale of software solutions to help clients effectively realize their strategies and create added value. The Company was incorporated under Part IA of the Companies Act (Québec), predecessor to the Business Corporations Act (Québec) which came into force on February 14, 2011 and its Class A subordinate voting shares are publicly traded. The executive and registered office of the Company is situated at 1350 René-Lévesque Blvd. West, Montréal, Québec, Canada, H3G 1T4.

2.	Basis of preparation

These interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB). In addition, the interim condensed consolidated financial statements have been prepared in accordance with the accounting policies set out in Note 3, Summary of significant accounting policies, of the Company’s consolidated financial statements for the year ended September 30, 2020 which were consistently applied to all periods presented.

These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended September 30, 2020.

The Company’s interim condensed consolidated financial statements for the three and six months ended March 31, 2021 and 2020 were authorized for issue by the Board of Directors on April 27, 2021.

3.	Accounting policies

USE OF JUDGEMENTS AND ESTIMATES

For the period ended March 31, 2021, the Company assessed the impact of the uncertainties around the outbreak of the novel strain of the coronavirus, specifically identified as the COVID-19 pandemic, on its balance sheet carrying amounts. This review required the use of judgements and estimates and resulted in no material impacts.

The future impact of COVID-19 uncertainties could generate, in future reporting periods, a significant risk of material adjustments to the following: revenue recognition, deferred tax assets, estimated losses on revenue-generating contracts, impairment of property, plant and equipment, right-of-use assets, intangible assets and goodwill as well as litigation and claims.

FUTURE ACCOUNTING STANDARD CHANGES

The following standards have been issued but are not yet effective as of March 31, 2021:

LIBOR reform with amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16

In August 2020, the IASB issued Interest Rate Benchmark Reform-Phase 2, which amends IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures and IFRS 16 Leases. The amendments complement those issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the reform. The standard will be effective on October 1, 2021 for the Company. The Company is currently evaluating the impact of this standard on its financial statements.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		6

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

4.	Accumulated other comprehensive income


	As at			As at
	March 31, 2021			September 30, 2020
	$			$

Items that will be reclassified subsequently to net earnings:

Net unrealized gains on translating financial statements of foreign operations, net of accumulated income tax expense of $46,001 ($56,239 as at September 30, 2020)		615,997			1,002,804

Net losses on cross-currency swaps and on translating long-term debt designated as hedges of net investments in foreign operations, net of accumulated income tax recovery of $39,160 ($63,692 as at September 30, 2020)		(256,844	)		(417,462	)

Deferred gains of hedging on cross-currency swaps, net of accumulated income tax expense of $3,271 ($4,049 as at September 30, 2020)		9,074			14,053

Net unrealized losses on cash flow hedges, net of accumulated income tax recovery of $3,359 ($2,554 as at September 30, 2020)		(7,628	)		(5,935	)

Net unrealized gains on financial assets at fair value through other comprehensive income, net of accumulated income tax expense of $979 ($1,291 as at September 30, 2020)		3,318			4,340

Items that will not be reclassified subsequently to net earnings:

Net remeasurement losses on defined benefit plans, net of accumulated income tax recovery of $17,181 ($18,920 as at September 30, 2020)		(44,963	)		(52,090	)

		318,954			545,710

For the six months ended March 31, 2021, $1,011,000 of the net unrealized losses on cash flow hedges, net of income tax recovery of $573,000, previously recognized in other comprehensive income were reclassified in the consolidated statements of earnings ($7,737,000 of the net unrealized gains on cash flow hedges, net of income tax expense of $2,503,000, were reclassified for the six months ended March 31, 2020).

For the six months ended March 31, 2021, $5,104,000 of the deferred gains of hedging on cross-currency swaps, net of income tax expense of $1,840,000 were also reclassified in the consolidated statements of earnings ($12,341,000 and $1,054,000, respectively were reclassified for the six months ended March 31, 2020).


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		7

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

5.	Capital stock, share-based payments and earnings per share

a)	Capital stock


	Class A subordinate voting shares						Class B multiple voting shares									Total
	Number			Carrying value			Number			Carrying value			Number			Carrying value
				$						$						$

As at September 30, 2020		230,690,875			1,721,491			28,945,706			40,382			259,636,581			1,761,873
Issued upon exercise of stock options¹		618,225			35,140			—			—			618,225			35,140
Performance share units (PSUs) exercised²		—			6,745			—			—			—			6,745
Purchased and cancelled³		(12,360,665	)		(154,639	)		—			—			(12,360,665	)		(154,639	)
Purchased and held in trusts⁴		—			(31,404	)		—			—			—			(31,404	)
Conversion of shares⁵		2,500,000			3,488			(2,500,000	)		(3,488	)		—			—
As at March 31, 2021		221,448,435			1,580,821			26,445,706			36,894			247,894,141			1,617,715

The carrying value of Class A subordinate voting shares includes $6,083,000 ($8,459,000 for the six months ended March 31, 2020), which corresponds to a reduction in contributed surplus representing the value of accumulated compensation costs associated with the stock options exercised during the period.

During the six months ended March 31, 2021, 112,985 PSUs were exercised (154,318 during the six months ended March 31, 2020) with a recorded value of $6,745,000 ($8,856,000 during the six months ended March 31, 2020) that was removed from contributed surplus. As at March 31, 2021, 1,439,644 Class A subordinate voting shares were held in trusts under the PSU plans (1,246,408 as at March 31, 2020).

On January 26, 2021, the Company’s Board of Directors authorized and subsequently received the regulatory approval from the Toronto Stock Exchange (TSX), for the renewal of the Normal Course Issuer Bid (NCIB) for the purchase for cancellation of up to 19,184,831 Class A subordinate voting shares on the open market through the TSX, the New York Stock Exchange (NYSE) and/or alternative trading systems or otherwise pursuant to exemption orders issued by securities regulators. The Class A subordinate voting shares are available for purchase for cancellation commencing on February 6, 2021 until no later than February 5, 2022, or on such earlier date when the Company has either acquired the maximum number of Class A subordinate voting shares allowable under the NCIB or decided not to make any further purchases for cancellation under it.

During the three months ended March 31, 2021, the Company purchased for cancellation 4,204,865 Class A subordinate voting shares from the Caisse de dépôt et placement du Québec for a cash consideration of $400,000,000 (6,008,905 and $600,000,000, respectively during the three months ended March 31, 2020). The excess of the purchase price over the carrying value in the amount of $310,048,000 was charged to retained earnings ($471,455,000 during the three months ended March 31, 2020). The purchase was made pursuant to an exemption order issued by the Autorité des marchés financiers and is considered within the annual aggregate limit that the Company is entitled to purchase under its current NCIB.

In addition, during the six months ended March 31, 2021, the Company purchased for cancellation 8,155,800 Class A subordinate voting shares (4,596,559 during the six months ended March 31, 2020) under its previous and current NCIB for a cash consideration of $783,123,000 ($443,517,000 for the six months ended March 31, 2020) and the excess of the purchase price over the carrying value in the amount of $718,436,000 ($406,747,000 for the six months ended March 31, 2020) was charged to retained earnings.

⁴

During the six months ended March 31, 2021, the trustees, in accordance with the terms of the PSU plans and Trust Agreements, purchased 309,606 Class A subordinate voting shares of the Company on the open market (525,331 during the six months ended March 31, 2020) for a cash consideration of $31,404,000 ($55,287,000 during the six months ended March 31, 2020).

⁵	On March 1, 2021, the Co-founder and Advisor to the Executive Chairman of the Board of the Company, also a related party of the Company, converted a total of 2,500,000 Class B multiple voting shares into 2,500,000 Class A subordinate voting shares.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		8

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

5.	Capital stock, share-based payments and earnings per share (continued)

b)	Share-based payments

i)	Stock options

Under the Company’s stock option plan, the Board of Directors may grant, at its discretion, stock options to purchase Class A subordinate voting shares to certain employees, officers and directors of the Company and its subsidiaries. The exercise price is established by the Board of Directors and is equal to the closing price of the Class A subordinate voting shares on the TSX on the day preceding the date of the grant. Stock options vest annually over four years from the date of the grant conditionally upon achievement of performance objectives and must be exercised within a ten-year period, except in the event of retirement, termination of employment or death.

The following table presents information concerning the number of outstanding stock options granted by the Company:



Outstanding as at September 30, 2020	8,934,097
Granted	993,840
Exercised (Note 5a)	(618,225	)
Forfeited	(581,638	)
Outstanding as at March 31, 2021	8,728,074

The weighted average fair value of stock options granted during the six months ended March 31 and the weighted average assumptions used in the calculation of their fair value on the date of the grant using the Black-Scholes option pricing model were as follows:


	2021		2020

Grant date fair value ($)		16.75		17.72
Dividend yield (%)		0.00		0.00
Expected volatility (%)¹		20.76		16.58
Risk-free interest rate (%)		0.40		1.55
Expected life (years)		4.00		4.00
Exercise price ($)		97.84		110.73
Share price ($)		97.84		110.73

¹	Expected volatility was determined using statistical formulas and based on the weekly historical average of closing daily share prices over the period of the expected life of stock options.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020			9

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

5.	Capital stock, share-based payments and earnings per share (continued)

b)	Share-based payments (continued)

ii)

Performance share units (PSUs)

The Company operates two PSU plans with similar terms and conditions. Under both plans, the Board of Directors may grant PSUs to certain employees and officers which entitle them to receive one Class A subordinate voting share for each PSU. The vesting performance conditions are determined by the Board of Directors at the time of each grant. PSUs expire on the business day preceding December 31 of the third calendar year following the end of the fiscal year during which the PSU award was made, except in the event of retirement, termination of employment or death. Conditionally upon achievement of performance objectives, granted PSUs under the first plan vest annually over a period of four years from the date of the grant and granted PSUs under the second plan vest at the end of the four-year period.

Class A subordinate voting shares purchased in connection with the PSU plans are held in trusts for the benefit of the participants. The trusts, considered as structured entities, are consolidated in the Company’s consolidated financial statements with the cost of the purchased shares recorded as a reduction of capital stock (Note 5a).

The following table presents information concerning the number of outstanding PSUs granted by the Company:



Outstanding as at September 30, 2020	1,231,470

Granted¹	669,018

Exercised (Note 5a)	(112,985	)

Forfeited	(356,699	)

Outstanding as at March 31, 2021	1,430,804

¹	The PSUs granted in the period had a grant date fair value of $94.00 per unit.

c)	Earnings per share

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended March 31:

2021

Three months ended March 31

2020

Net
earnings

Weighted average number of
shares outstanding¹

Earnings

per share

Net
earnings

Weighted average number of
shares outstanding¹

Earnings
per share

Basic

341,213

250,199,106

1.36

314,848

263,638,028

1.19

Net effect of dilutive stock options and PSUs²

3,766,591

4,138,847

341,213

253,965,697

1.34

314,848

267,776,875

1.18

2021

Six months ended March 31

2020

Net
earnings

Weighted average number of
shares outstanding¹

Earnings
per share

Net
earnings

Weighted average number of
shares outstanding¹

Earnings
per share

Basic

684,664

253,592,671

2.70

605,041

265,933,573

2.28

Net effect of dilutive stock options and PSUs²

3,682,033

4,577,000

684,664

257,274,704

2.66

605,041

270,510,573

2.24

During the three months ended March 31, 2021, 7,705,965 Class A subordinate voting shares purchased for cancellation and 1,439,644 Class A subordinate voting shares held in trusts were excluded from the calculation of the weighted average number of shares outstanding as of the date of the transaction (10,436,164 and 1,246,408, respectively during the three months ended March 31, 2020). During the six months ended March 31, 2021, 12,360,665 Class A subordinate voting shares purchased for cancellation and 1,439,644 Class A subordinate voting shares held in trusts were excluded from the calculation of the weighted average number of shares outstanding as of the date of the transaction (10,605,464 and 1,246,408, respectively during the six months ended March 31, 2020).

²	The calculation of the diluted earnings per share excluded 1,315,340 stock options for the three and six months ended March 31, 2021 (914,521 for the three and six months ended March 31, 2020), as they were anti-dilutive.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020			10

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

6.	Investments in subsidiaries

a)	Business acquisition realized in the current fiscal year

The Company made the following acquisition during the six months ended March 31, 2021:

–

On December 31, 2020, the Company acquired the assets of Harris, Mackessy & Brennan, Inc.’s Professional Services Division, for a purchase price of $30,340,000. Based in the United States, the division focused on high-end technology consulting and services for commercial and government clients and is headquartered in Columbus, Ohio.

This acquisition was made to further expands CGI’s footprint in the region and to complement CGI’s proximity model and expertise across key sectors, including utilities and energy, manufacturing, retail, insurance and government.

b)	Business acquisitions realized in the prior fiscal year

During the three months ended March 31, 2021, the Company finalized the fair value of assets acquired and liabilities assumed for TeraThink Corporation with no significant adjustments.

During the six months ended March 31, 2021, the Company finalized the fair value of assets acquired and liabilities assumed for SCISYS Group Plc and Meti Logiciels et Services SAS with no significant adjustments.

c)	Acquisition-related and integration costs

During the three and six months ended March 31, 2021, the Company expensed $848,000 and $5,587,000, respectively, for acquisition-related and integration costs. These amounts include acquisition-related costs of nil and integration costs of $848,000 and $5,587,000, respectively. The integration costs mainly include terminations of employment of nil and $750,000, respectively, accounted for in restructuring provisions, as well as other integration costs of $848,000 and $4,837,000, respectively.

During the three and six months ended March 31, 2020, the Company expensed $31,097,000 and $51,331,000, respectively, for acquisition-related and integration costs. These amounts included acquisition-related costs of $962,000 and $6,545,000, respectively, and integration costs of $30,135,000 and $44,786,000, respectively. The acquisition-related costs consisted mainly of professional fees incurred for the acquisitions. The integration costs mainly included terminations of employment of $22,512,000 and $31,607,000, respectively, accounted for in restructuring provisions, as well as other integration costs of $7,623,000 and $13,179,000, respectively.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020			11

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

7.	Supplementary cash flow information

a)	Net change in non-cash working capital items is as follows for the three and six months ended March 31:


	Three months ended March 31						Six months ended March 31
	2021			2020			2021			2020
		$			$			$			$
Accounts receivable		156,466			166,336			58,741			(15,033	)
Work in progress		(70,909	)		(77,716	)		(2,675	)		20,338
Prepaid expenses and other assets		(12,312	)		(38,659	)		(32,080	)		9,926
Long-term financial assets		649			8,562			(10,413	)		3,552
Accounts payable and accrued liabilities		(113,759	)		(87,206	)		(39,458	)		(4,429	)
Accrued compensation		163,607			(5,511	)		117,698			(71,360	)
Deferred revenue		76,063			2,647			164,996			35,035
Income taxes		(3,534	)		(21,993	)		57,039			16,634
Provisions		(46,128	)		(7,517	)		(59,806	)		4,755
Long-term liabilities		(2,852	)		(13,717	)		(2,669	)		(13,235	)
Derivative financial instruments		80			(37	)		(46	)		(59	)
Retirement benefits obligations		(19,585	)		29,686			(839	)		(2,743	)
		127,786			(45,125	)		250,488			(16,619	)

b)	Net interest paid and income taxes paid are classified within operating activities and are as follows for the three and six months ended March 31:


	Three months ended March 31				Six months ended March 31
	2021		2020		2021		2020
		$		$		$		$
Net interest paid		41,858		45,773		67,174		71,658
Income taxes paid		139,941		136,697		198,005		196,788

c)	Cash and cash equivalents consisted of unrestricted cash as at March 31, 2021 and September 30, 2020.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020			12

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

8.	Segmented information

The following tables present information on the Company’s operations which are managed through the following nine operating segments, namely: Western and Southern Europe (primarily France and Portugal); United States (U.S.) Commercial and State Government; Canada; U.S. Federal; United Kingdom (U.K.) and Australia; Central and Eastern Europe (primarily Germany and the Netherlands); Scandinavia; Finland, Poland and Baltics; and Asia Pacific Global Delivery Centers of Excellence (mainly India and Philippines) (Asia Pacific).

The operating segments reflect the current management structure and the way that the chief operating decision-maker, who is the President and Chief Executive Officer of the Company, evaluates the business.


															For the three months ended March 31, 2021
	Western and Southern Europe		U.S. Commercial and State Government		Canada		U.S. Federal		U.K. and Australia		Central and Eastern Europe		Scandinavia		Finland, Poland and Baltics		Asia Pacific		Eliminations			Total
		$		$		$		$		$		$		$		$		$		$			$
Segment revenue		513,588		430,825		443,756		399,639		345,073		336,940		273,807		198,213		166,543		(29,844	)		3,078,540
Segment earnings before acquisition-related and integration costs, net finance costs and income tax expense¹		74,305		61,436		98,007		55,919		62,016		36,155		17,454		28,169		52,865		—			486,326

Acquisition-related and integration costs (Note 6c)																							(848	)

Net finance costs																							(26,231	)
Earnings before income taxes																							459,247
¹Total amortization and depreciation of $124,344,000 included in the Western and Southern Europe, U.S. Commercial and State Government, Canada, U.S. Federal, U.K. and Australia, Central and Eastern Europe, Scandinavia, Finland, Poland and Baltics and Asia Pacific segments is $15,937,000, $17,108,000, $15,890,000, $12,219,000, $14,342,000, $17,139,000, $15,646,000, $9,404,000 and $6,659,000, respectively for the three months ended March 31, 2021.
															For the three months ended March 31, 2020
	Western and Southern Europe		U.S. Commercial and State Government		Canada		U.S. Federal		U.K. and Australia		Central and Eastern Europe		Scandinavia		Finland, Poland and Baltics		Asia Pacific		Eliminations			Total
		$		$		$		$		$		$		$		$		$		$			$
Segment revenue		528,472		468,109		435,462		416,884		344,436		309,547		294,279		201,496		168,814		(36,358	)		3,131,141
Segment earnings before acquisition-related and integration costs, restructuring costs, net finance costs and income tax expense¹		84,936		69,601		91,552		49,325		53,376		30,549		24,349		31,896		47,662		—			483,246

Acquisition-related and integration costs (Note 6c)																							(31,097	)

Restructuring costs																							(443	)

Net finance costs																							(26,628	)
Earnings before income taxes																							425,078

¹Total amortization and depreciation of $130,482,000 included in the Western and Southern Europe, U.S. Commercial and State Government, Canada, U.S. Federal, U.K. and Australia, Central and Eastern Europe, Scandinavia, Finland, Poland and Baltics and Asia Pacific segments is $15,205,000, $19,581,000, $16,659,000, $10,273,000, $16,733,000, $19,705,000, $16,970,000, $9,119,000 and $6,237,000, respectively for the three months ended March 31, 2020.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020			13

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

8.	Segmented information (continued)


															For the six months ended March 31, 2021
	Western and Southern Europe		U.S. Commercial and State Government		Canada		U.S. Federal		U.K. and Australia		Central and Eastern Europe		Scandinavia		Finland, Poland and Baltics		Asia Pacific		Eliminations			Total
	$		$		$		$		$		$		$		$		$		$			$
Segment revenue		993,908		867,249		873,520		810,625		672,868		655,326		548,346		406,214		328,424		(58,499	)		6,097,981
Segment earnings before acquisition-related and integration costs, net finance costs and income tax expense¹		140,543		128,563		197,051		110,820		120,829		78,114		41,612		59,200		105,320		—			982,052

Acquisition-related and integration costs (Note 6c)																							(5,587	)

Net finance costs																							(53,409	)
Earnings before income taxes																							923,056
¹Total amortization and depreciation of $255,376,000 included in the Western and Southern Europe, U.S. Commercial and State Government, Canada, U.S. Federal, U.K. and Australia, Central and Eastern Europe, Scandinavia, Finland, Poland and Baltics and Asia Pacific segments is $34,473,000, $35,654,000, $31,418,000, $25,074,000, $27,801,000, $34,777,000, $31,835,000, $21,521,000 and $12,823,000, respectively for the six months ended March 31, 2021. Amortization includes impairments in Western and Southern Europe for $3,058,000 related to a business solution and in Finland, Poland and Baltics for $3,490,000 related to contract costs. These assets were no longer expected to generate future economic benefits.
															For the six months ended March 31, 2020
	Western and Southern Europe		U.S. Commercial and State Government		Canada		U.S. Federal		U.K. and Australia		Central and Eastern Europe		Scandinavia		Finland, Poland and Baltics		Asia Pacific		Eliminations			Total
	$		$		$		$		$		$		$		$		$		$			$
Segment revenue		1,022,005		916,083		871,431		838,829		670,273		607,326		597,481		400,519		329,631		(67,690	)		6,185,888
Segment earnings before acquisition-related and integration costs, restructuring costs, net finance costs and income tax expense¹		158,580		137,035		191,008		105,490		101,129		61,895		47,875		61,601		92,739		—			957,352

Acquisition-related and integration costs (Note 6c)																							(51,331	)

Restructuring costs																							(31,621	)

Net finance costs																							(53,350	)
Earnings before income taxes																							821,050

Total amortization and depreciation of $262,610,000 included in the Western and Southern Europe, U.S. Commercial and State Government, Canada, U.S. Federal, U.K. and Australia, Central and Eastern Europe, Scandinavia, Finland, Poland and Baltics and Asia Pacific segments is $30,230,000, $39,893,000, $34,133,000, $20,520,000, $34,361,000, $39,784,000, $34,059,000, $17,388,000 and $12,242,000, respectively for the six months ended March 31, 2020.

The accounting policies of each operating segment are the same as those described in Note 3, Summary of significant accounting policies, of the Company’s consolidated financial statements for the year ended September 30, 2020. Intersegment revenue is priced as if the revenue was from third parties.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		14

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

8.	Segmented information (continued)

GEOGRAPHIC INFORMATION

The following table provides external revenue information based on the client’s location which is different from the revenue presented under operating segments, due to the intersegment revenue, for the three and six months ended March 31:


	Three months ended March 31				Six months ended March 31
	2021		2020		2021		2020
	$		$		$		$
Western and Southern Europe

France		452,482		467,231		873,652		899,204

Others		60,611		61,976		117,916		124,716
		513,093		529,207		991,568		1,023,920

U.S.¹		855,646		902,465		1,724,177		1,789,932

Canada		477,001		465,992		941,611		931,020

U.K. and Australia

U.K.		380,501		382,435		743,050		743,574

Australia		16,552		12,823		33,018		28,199
		397,053		395,258		776,068		771,773

Central and Eastern Europe

Germany		204,561		183,497		395,003		356,527

Netherlands		122,080		118,234		239,850		232,990

Others		20,037		18,089		39,058		36,258
		346,678		319,820		673,911		625,775

Scandinavia

Sweden		207,781		221,568		416,636		450,973

Others		77,561		87,227		154,797		174,800
		285,342		308,795		571,433		625,773

Finland, Poland and Baltics

Finland		193,075		198,856		396,358		395,981

Others		9,392		9,125		19,012		18,928
		202,467		207,981		415,370		414,909

Asia Pacific

Others		1,260		1,623		3,843		2,786
		1,260		1,623		3,843		2,786
		3,078,540		3,131,141		6,097,981		6,185,888

External revenue included in the U.S. Commercial and State Government and U.S. Federal operating segments was $452,816,000 and $402,830,000, respectively for the three months ended March 31, 2021 ($479,913,000 and $422,552,000, respectively for the three months ended March 31, 2020). In addition, external revenue included in the U.S. Commercial and State Government and U.S. Federal operating segments was $905,925,000 and $818,252,000, respectively for the six months ended March 31, 2021 ($939,604,000 and $850,328,000, respectively for the six months ended March 31, 2020).


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		15

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

8.	Segmented information (continued)

INFORMATION ABOUT SERVICES

The following table provides revenue information based on services provided by the Company for the three and six months ended March 31:


	Three months ended March 31				Six months ended March 31
	2021		2020		2021		2020
	$		$		$		$
Systems integration and consulting		1,383,117		1,457,673		2,728,167		2,856,040
Managed IT and business process services		1,695,423		1,673,468		3,369,814		3,329,848
		3,078,540		3,131,141		6,097,981		6,185,888

MAJOR CLIENT INFORMATION

Contracts with the U.S. federal government and its various agencies, included within the U.S. Federal operating segment, accounted for $386,499,000 and 12.6% of revenues for the three months ended March 31, 2021 ($400,486,000 and 12.8% for the three months ended March 31, 2020) and $779,475,000 and 12.8% of revenues for the six months ended March 31, 2021 ($794,548,000 and 12.8% for the six months ended March 31, 2020).


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		16

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

9.	Financial instruments

FAIR VALUE

All financial instruments are initially measured at fair value and are subsequently classified either at amortized cost, at fair value through earnings or at fair value through other comprehensive income.

The Company has made the following classifications:

Amortized cost

Trade accounts receivable, cash included in funds held for clients, long-term receivables within long-term financial assets, accounts payable and accrued liabilities, accrued compensation, long-term debt and clients’ funds obligations.

Fair value through earnings (FVTE)

Cash and cash equivalents, derivative financial instruments and deferred compensation plan assets within long-term financial assets.

Fair value through other comprehensive income (FVOCI)

Long-term bonds included in funds held for clients and in long-term investments within long-term financial assets.

FAIR VALUE HIERARCHY

Fair value measurements recognized in the consolidated balance sheet are classified in accordance with the following levels:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included in Level 1, but that are observable for the asset or liability, either directly or indirectly; and

Level 3: inputs for the asset or liability that are not based on observable market data.

FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Valuation techniques used to value financial instruments are as follows:

The fair value of Senior U.S. and euro unsecured notes, the unsecured committed revolving credit facility, the unsecured committed term loan credit facilities and the other long-term debt is estimated by discounting expected cash flows at rates currently offered to the Company for debts of the same remaining maturities and conditions;

The fair value of long-term bonds included in funds held for clients and in long-term investments is determined by discounting the future cash flows using observable inputs, such as interest rate yield curves or credit spreads, or according to similar transactions on an arm’s-length basis;

The fair value of foreign currency forward contracts is determined using forward exchange rates at the end of the reporting period;

The fair value of cross-currency swaps and interest rate swaps is determined based on market data (primarily yield curves, exchange rates and interest rates) to calculate the present value of all estimated flows;

The fair value of cash and cash equivalents is determined using observable quotes; and

The fair value of deferred compensation plan assets within long-term financial assets is based on observable price quotations and net assets values at the reporting date.

There were no changes in valuation techniques during the six months ended March 31, 2021.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		17

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

9.	Financial instruments (continued)

FAIR VALUE MEASUREMENTS (CONTINUED)

The following table presents the financial liabilities included in the long-term debt measured at amortized cost categorized using the fair value hierarchy:

As at March 31, 2021

As at September 30, 2020

Level

Carrying amount

Fair value

Carrying amount

Fair value

Senior U.S. and euro unsecured notes

Level 2

1,141,362

1,204,904

1,211,965

1,297,632

Other long-term debt

Level 2

32,678

31,983

44,842

43,536

1,174,040

1,236,887

1,256,807

1,341,168

For the remaining financial assets and liabilities measured at amortized cost, the carrying values approximate the fair values of the financial instruments given their short term maturity.

During the three months ended March 31, 2021, the Company extended the two-year unsecured committed term loan credit facility, entered into during the year ended September 30, 2020, by one year to March 2023. There were no material changes in the terms and conditions including interest rates and banking covenants.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		18

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended March 31, 2021 and 2020

(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

9.	Financial instruments (continued)

FAIR VALUE MEASUREMENTS (CONTINUED)

The following table presents financial assets and liabilities measured at fair value categorized using the fair value hierarchy:


	Level	As at March 31, 2021		As at September 30, 2020
		$		$
Financial assets
FVTE
Cash and cash equivalents	Level 2		1,339,794		1,707,985
Deferred compensation plan assets	Level 1		78,013		73,156
			1,417,807		1,781,141
Derivative financial instruments designated as hedging instruments
Current derivative financial instruments included in current financial assets	Level 2
Cross-currency swaps			7,656		—
Foreign currency forward contracts			13,306		17,027
Interest rate swaps			3,466		—
Long-term derivative financial instruments	Level 2
Cross-currency swaps			25,549		25,362
Foreign currency forward contracts			5,700		8,636
Interest rate swaps			—		6,180
			55,677		57,205
FVOCI
Short-term investments included in current financial assets	Level 2		—		1,473
Long-term bonds included in funds held for clients	Level 2		137,771		148,470
Long-term investments	Level 2		20,116		22,612
			157,887		172,555
Financial liabilities
Derivative financial instruments designated as hedging instruments
Current derivative financial instruments	Level 2
Cross-currency swaps			13,442		5,320
Foreign currency forward contracts			2,688		3,008
Long-term derivative financial instruments	Level 2
Cross-currency swaps			63,381		52,275
Foreign currency forward contracts			6,156		4,347
			85,667		64,950

There were no transfers between Level 1 and Level 2 during the six months ended March 31, 2021.


CGI Inc. – Interim Condensed Consolidated Financial Statements for the three and six months ended March 31, 2021 and 2020		19